Insurance valuation

[Bravoman]

9 hours ago, rbridges said:

I don't think that's excessive.  Your premium probably wont shift much going from 60-70-80.  You just have to decide if you'd be okay looking for a new plane if your plane was totalled, and you were given $XX.  Mine is insured at 60k, and I'm thinking about raising it.  

Rob, you have added a unique provenance to your bird. I would say that since you have owned her she has increased in value at least three fold! 

[PTK]

21 hours ago, mooniac15u said:

Insurance hull value has very little to do with market valuation.  It's whatever you can convince them to write the policy for and are willing to pay the corresponding premium. 

Stated insurance value has everything to do with objective market value. If you find the need to "convince" the insurance underwriter to write a policy for some other subjective value you are missing the point. 

The better approach would be to run a valuation of the aircraft and insure it for a nice round number at that level. Going forward update the valuation on an annual basis about a month or so before renewal.

The understanding is that we always underwrite some risk ourselves and can't depend on the insurance for 100%, and logic dictates that the case of damage beyond repair is extremely rare. 

 

[mooniac15u]

2 hours ago, PTK said:

Stated insurance value has everything to do with objective market value. If you find the need to "convince" the insurance underwriter to write a policy for some other subjective value you are missing the point. 

The better approach would be to run a valuation of the aircraft and insure it for a nice round number at that level. Going forward update the valuation on an annual basis about a month or so before renewal.

The understanding is that we always underwrite some risk ourselves and can't depend on the insurance for 100%, and logic dictates that the case of damage beyond repair is extremely rare. 

 

You are describing your approach to insurance.  It is a view consistent with your risk tolerance.  It is not the only approach to insurance.

Hull value is very subjective.  The insurers have a range that they will insure for a given airframe.  If you request a value in that range they will quote you a premium.  All one has to do is look at the listings on Controller or Trade-a-Plane to see how owners perceive valuation as opposed to actual market valuation.

All that aside, insurance isn’t really about valuation, it’s about managing risk.  A policy is simply a contract agreeing to compensation in the event of a loss.  The impact of that loss relative to your financial resources is a more important factor than market valuation.  Some would insure for replacement, while others would insure for the amount they have invested (could be higher or lower than market valuation), and still others may decide not to purchase insurance at all.  It all depends on your risk tolerance and the potential financial impact of the loss.  If the value of the aircraft is low enough relative to your financial resources the loss might not be significant enough to worry about insurance.  This happens all the time with cars.  For new cars people usually purchase full coverage but over time as the value drops they may decide that the cost of the insurance is too high relative to the risk and drop back to only liability coverage.

Most owners probably use something around the purchase price to set a hull value and then never change that value as the paint fades and the engine hours add up.  Have you decreased your coverage over time to ensure that your coverage is equal to the lower market valuation?

Damage beyond repair is not rare at all in aviation.  A gear up landing in many vintage Mooneys will result in a total loss and the airframe sold for salvage.

[gsxrpilot]

Just now, mooniac15u said:

Damage beyond repair is not rare at all in aviation.  A gear up landing in many vintage Mooneys will result in a total loss and the airframe sold for salvage.

N6XM is a perfect example of this. It was one of the best examples of an M20C that was a total loss from a simple gear collapse.

[Bob_Belville]

Just now, gsxrpilot said:

N6XM is a perfect example of this. It was one of the best examples of an M20C that was a total loss from a simple gear collapse.

A "normal" gear up landing event in a vintage Mooney will probably result in minimal damage to the plane beyond the prop and the "mandatory" engine tear down. Depending upon whether the plane has a one piece belly I suppose the damage won't be more than $5000. So the Insurance adjuster is really weighing the cost of a new prop and the engine inspect. That's at least $25k. So if the plane has only $40k hull insurance the adjuster is almost certainly going to write a check to the owner and sell the plane as is, remember,  after paying out the agreed hul value everything is his including that new avionics.

If that's where you'd want to be with your particular plane then you're okay with a $40k hull coverage. OTOH, if you would rather have the plane repaired because it suits your needs and you wouldn't want to go through the pig in a poke adventure finding another $40k Mooney, you might want to have a higher hull value. If our intrepid adjuster is working the samw claim but with a policy with $60k hull and a potential $25-30k repair he will probably authorize the repair and you get a new prop and an opportunity to have an engine shop evaluate your engine. In my case, I got to replace a corroded cam and lifters for the cost of the parts because the engine was already torn down.  Routinely a prop strike justifies a new vacuum pump, new mags.  You might even get new engine mounts thrown in or at a pro rata cost. Hoses and other peripherals can replaced and even if you buy the parts the labor is including in the engine re-install. 

[markejackson02]

48 minutes ago, gsxrpilot said:

N6XM is a perfect example of this. It was one of the best examples of an M20C that was a total loss from a simple gear collapse.

Should be "damaged beyond economic repair".  I had exactly that happen.  Gear up in 67 C model.  Insured for blue book (~45K at the time.)  Repair estimate was $35K, so they decalred it a total loss.

The frustrating thing was I had spent five years getting the plane in good shape and upgrading it, etc.  Insuring it for $100K would have been stupid expensive but maybe $60K would have reflected the premium I put on having it put together the way I liked it and prevented them totalling it.

So I promptly took the proceeds and upgraded to a 77 J hangar queen which was a bigger mistake, but that's for another time

[gsxrpilot]

As I mentioned earlier... I had N6XM insured for $60K just because it was so well upgraded and unusually so for a C. I sold if for $50K and I believe it was insured at $50K by the new owner. That wasn't enough coverage to fix it and it was scrapped.

I had to go spend stupid money on the panel in my 252 just to get over the sorrow of the loss of a beautiful airplane I didn't even own 

[Ron McBride]

I raised my hull values on my F from $70,000 to $90,000 and the cost was less than a $100.00 a year.  I am a little over insured, but have a lot of money in it.

I changed to $1,000,0000 smooth and the insurance went up about $500.00.

Ron

[Marauder]

1 hour ago, N803RM said:

I raised my hull values on my F from $70,000 to $90,000 and the cost was less than a $100.00 a year.  I am a little over insured, but have a lot of money in it.

I changed to $1,000,0000 smooth and the insurance went up about $500.00.

Ron

I'm in the same category but my coverage just keeps up with what I have invested in it.

[Bob_Belville]

Maybe ""hull" is a misleading label. Some MS smart aleck offered to give a buyer the airframe, all he needed was to get back what he'd spent on the panel (and engine?).  

[RobertGary1]

When my friend landed by V tail gear up earlier this year the insurance company said the repair threshold is 80%. Repairs that come to more than 80% of the agreed value are paid out as a total lose. Remember the insurance company accepts risk in fixing a plane, including unseen damage and warranty for the repair in most states. Mine was at about 78% so they gave me the option. Plus they get to sell the salvage so that's money in their pockets.

Remember that if you opt to repair the plane you have to pay "betterment" to the insurance company. My prop had 200 hours and would be replaced with a 0 hour prop so I would be responsible for paying the valuation difference. 

If you attempt to request an agreed value too much over vRef they just require you to provide an explanation as to why. The insured value does have to have a market basis but once the contract is written they're stuck with it for that year. Most encourage you to over-insure a bit because off all the acquisition costs associated with replacing a plane (including taxes, etc). 

-Robert

Edited November 15, 2017 by RobertGary1

[StinkBug]

14 hours ago, gsxrpilot said:

As I mentioned earlier... I had N6XM insured for $60K just because it was so well upgraded and unusually so for a C. I sold if for $50K and I believe it was insured at $50K by the new owner. That wasn't enough coverage to fix it and it was scrapped.

I had to go spend stupid money on the panel in my 252 just to get over the sorrow of the loss of a beautiful airplane I didn't even own 

I hadn't heard about this, and now I'm a little bummed out as well. 

[Bob_Belville]

A question for @Parker_Woodruff or anyone else with insight on negotiating with insurance adjusters: Suppose you were to do a gear up in a Mooney with only $40k or $50k hull and you really wanted to repair the plane that the adjuster was prepared to total. Would the adjuster be willing to settle by paying $20 or $25k say as full settlement of the claim and allow the owner to keep the plane and take on the risk of unknown costs while repairing the plane. I suppose our owner might have to spend $5k or more out of pocket but he'd keep his familiar plane that he feels is worth more than what he had in (under)insured for.  Of course this same outcome could be accomplished if the adjuster would total the plane, pay the owner, and set a price on the salvage that the owner could buy.

[gsxrpilot]

Just now, Bob_Belville said:

A question for @Parker_Woodruff or anyone else with insight on negotiating with insurance adjusters: Suppose you were to do a gear up in a Mooney with only $40k or $50k hull and you really wanted to repair the plane that the adjuster was prepared to total. Would the adjuster be willing to settle by paying $20 or $25k say as full settlement of the claim and allow the owner to keep the plane and take on the risk of unknown costs while repairing the plane. I suppose our owner might have to spend $5k or more out of pocket but he'd keep his familiar plane that he feels is worth more than what he had in (under)insured for.  Of course this same outcome could be accomplished if the adjuster would total the plane, pay the owner, and set a price on the salvage that the owner could buy.

@jasona900 can give you the details on this. He did some negotiating over N6XM but ultimately the numbers just wouldn't work out and he had to let it get scrapped. He can tell you what the insurance co was willing to offer to allow him to fix it.

[jwilcoxon78]

45 minutes ago, Bob_Belville said:

A question for @Parker_Woodruff or anyone else with insight on negotiating with insurance adjusters: Suppose you were to do a gear up in a Mooney with only $40k or $50k hull and you really wanted to repair the plane that the adjuster was prepared to total. Would the adjuster be willing to settle by paying $20 or $25k say as full settlement of the claim and allow the owner to keep the plane and take on the risk of unknown costs while repairing the plane. I suppose our owner might have to spend $5k or more out of pocket but he'd keep his familiar plane that he feels is worth more than what he had in (under)insured for.  Of course this same outcome could be accomplished if the adjuster would total the plane, pay the owner, and set a price on the salvage that the owner could buy.

Most companies will consider a negotiated settlement in that fashion, cash in lieu of repairs, in exchange for a policy holder's release.  What this means is that this is all the policy will pay regardless of what other costs above and beyond you might incur.  They have to weigh the likely salvage value of the aircraft as it sits to better understand what that settlement might look like. 

[mooniac15u]

1 hour ago, Bob_Belville said:

A question for @Parker_Woodruff or anyone else with insight on negotiating with insurance adjusters: Suppose you were to do a gear up in a Mooney with only $40k or $50k hull and you really wanted to repair the plane that the adjuster was prepared to total. Would the adjuster be willing to settle by paying $20 or $25k say as full settlement of the claim and allow the owner to keep the plane and take on the risk of unknown costs while repairing the plane. I suppose our owner might have to spend $5k or more out of pocket but he'd keep his familiar plane that he feels is worth more than what he had in (under)insured for.  Of course this same outcome could be accomplished if the adjuster would total the plane, pay the owner, and set a price on the salvage that the owner could buy.

I looked into that with my M20D.  I made a very gentle belly landing after a mechanical gear failure and the repair costs were still estimated at over $40k.  There was just no way to make it work financially without being an A&P so you could do the work yourself.  If you were really motivated you could take the insurance payment and then bid on the salvage.

My D was purchased from the insurance company by AirMods.  I'm guessing they could make it work because their actual labor cost is lower than what I would have to pay as a customer.  I believe they also did not do a full engine teardown but just did the work required with a prop strike.

[markejackson02]

In my case, the insurance company would have been willing to repair the plane had the A&P/IA guaranteed a fixed price repair.  Since that seemed like a crazy thing to do, they ended up totaling it.  

If you can get your A&P to give them a fixed price repair and do a side deal with him(her) to cover any additional costs, you might be able to keep the plane.

 

[ArtVandelay]

A lot of this belly landing discussions assume they pay for full repairs which may not be the case, if the engine is past TBO and prop is way overdue for an overhaul, wouldn’t they adjust the amount paid. I expect they say your engine,prop values are minimal and they would only pay for the belly repairs. Yes or no?

[Bob_Belville]

1 minute ago, teejayevans said:

A lot of this belly landing discussions assume they pay for full repairs which may not be the case, if the engine is past TBO and prop is way overdue for an overhaul, wouldn’t they adjust the amount paid. I expect they say your engine,prop values are minimal and they would only pay for the belly repairs. Yes or no?

I would say no. They will pay for the engine tear down and inspection. They will not pay for anything done that is not attributable to the incident. So, if the cam is bad, as mine was, I paid for a new cam and lifters but no extra labor was involved. The same would apply to a good bit of work that would be covered, e.g. the removal and installation of the engine would be covered. Mags and vacuum pump would be covered. In my experience the adjusted did not try to prorate anything but that certainly might be the case with some insurers.

 

[Parker_Woodruff]

I'm sure the negotiating rules vary from company to company, so I can't comment on that.

I'm sure it's very situational.

[RobertGary1]

53 minutes ago, teejayevans said:

A lot of this belly landing discussions assume they pay for full repairs which may not be the case, if the engine is past TBO and prop is way overdue for an overhaul, wouldn’t they adjust the amount paid. I expect they say your engine,prop values are minimal and they would only pay for the belly repairs. Yes or no?

Kind of...If they repair it they will charge you "betterment" so you have to pay the difference of the increased engine value due to the repair.

-Robert

[mooniac15u]

2 hours ago, teejayevans said:

A lot of this belly landing discussions assume they pay for full repairs which may not be the case, if the engine is past TBO and prop is way overdue for an overhaul, wouldn’t they adjust the amount paid. I expect they say your engine,prop values are minimal and they would only pay for the belly repairs. Yes or no?

My engine had ~1900 hours at the time of the incident.  The insurance company was willing to pay for a teardown inspection which was estimated at ~$10K.  The engine shops I talked to were happy to turn it into an overhaul and bill me separately for the difference.  In general an insurer will pay for an inspection and to repair any damage to the engine that can be directly attributed to the prop strike.  Any other repairs or improvements are the owner's responsibility.  The number of hours on the engine is irrelevant.

I think the cost of an engine teardown inspection sounds like a lot to us but is probably insignificant to an aviation insurer.

[Bob_Belville]

46 minutes ago, mooniac15u said:

I think the cost of an engine teardown inspection sounds like a lot to us but is probably insignificant to an aviation insurer.

I think the tear down, which is recommended by Continental and required by Lycoming, has long ago been judged by the insurers to be automatic - CYA. If they declined to do that and it turned out that there was internal damage... 

[jasona900]

9 hours ago, gsxrpilot said:

@jasona900 can give you the details on this. He did some negotiating over N6XM but ultimately the numbers just wouldn't work out and he had to let it get scrapped. He can tell you what the insurance co was willing to offer to allow him to fix it.

Paul, you stated it quite well.  N6XM had a gear collapse as just as I took the runway for takeoff (very slow taxi speed).  The longer version of this story can be found here: https://mooneyspace.com/topic/20619-landing-gear-collapsed-during-taxi/?tab=comments#comment-311843  

I would not have settled for a prop strike inspection.  My insurance co offered a payout of the insured value ($50k), and also offered $36k if I wanted to keep the airplane and fix it.  I thought the insurance company's offer was very fair, however given the repairs required to the airframe, engine teardown, new prop, and personal reasons, I elected to let it go.  That was a fine airplane, and I do believe one of the best C models out there, but after struggling for three months to keep it or not, I let the insurance company have it.  Now I have a J, and life is once again, good.

 

[Browncbr1]

Thanks for all the great conversation guys.   I decided to renew at $80k hull value.   300TT, IFR, commercial, all but about 10 hours has been in my F...  1million smooth.   $970 premium.